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Eaton Centre to expand for Saks Fifth Avenue flagship and include the Bay

In a retail deal worth $650-million, the Eaton Centre will expand across Queen Street

HBC says it will receive $650 million for selling two properties that house its flagship store and the adjoining Simpson’s Tower at the corner of Bay and Queen streets. The company will then lease back the properties for 25 years with options to extend that term. (Ron Bull / TORONTO STAR)

Toronto Eaton Centre is expanding south, acquiring the Hudson’s Bay store on Queen St. W. and becoming home to the first Saks Fifth Avenue in Canada.

“This is the biggest expansion of the Eaton Centre since it was built,” said John Sullivan, president and chief executive officer of Cadillac Fairview, which owns and operates the mall.

Cadillac Fairview will pay Hudson’s Bay Co. $650 million for the property, which includes the store and the Simpson’s Tower at the corner of Queen St. W. and Bay St.

As part of the deal, HBC will open a 150,000-square-foot flagship Saks Fifth Avenue in the fall of 2015 in the Hudson’s Bay store, anchoring the new south end of the Eaton Centre.

The Hudson’s Bay store will continue to operate, just in a smaller, 600,000-square-foot space, which it will lease from Cadillac Fairview. Kleinfeld Bridal is also opening at the Bay on Queen St. and Topshop already does brisk business there.

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HBC has also agreed to lease space in Cadillac Fairview’s Sherway Gardens, opening a Saks there in the spring of 2016 after the space is vacated by Sears.

Both Saks locations will include upscale food courts, something not seen in U.S. Saks stores, said HBC governor and chief executive officer Richard Baker. He said the food courts will be comparable to those in the London department store Harrods.

The announcement was made Monday, less than two weeks after Seattle-based department store retailer Nordstrom revealed it will open in the fall of 2016 in some of the space being vacated by Sears at the north end of Toronto Eaton Centre.

But Nordstrom won’t be taking all the space being vacated by Sears — there remains room for more retailers to move into the Sears space, further increasing the appeal of Toronto’s premier tourist attraction.

Plans to open a Saks location in the Bay store on Bloor St. W. have been scrapped, said Baker.

“We changed courses. We had plans and we were highly considering going to Bloor St.”

Baker said that after Sullivan read that HBC was hoping to open a flagship Saks on Bloor St., he called him to discuss a counter-proposal.

“He explained to me that Nordstrom was going into the Sears box at the Eaton Centre and how great it would be for the Eaton Centre to have Saks along with Hudson’s Bay, along with Kleinfeld and Top Shop as part of the Eaton Centre. I said, ‘Even if we locate Saks downtown, it’s not part of the Eaton Centre, it’s adjacent (to) the Eaton Centre,’ ” said Baker.

“John said ‘What if we purchased your complex and made it part of the Eaton Centre? . . . We could market it and advertise and do directories in the mall and signage in the mall and we could renovate the (pedestrian) bridge and really make it the single most exciting, most dynamic retail complex in all of Canada.’ ”

Sullivan said adding Saks and Nordstrom to the mix will make Toronto Eaton Centre more appealing to a wider audience.

“To be honest it dawned on me when I saw that Richard bought Saks, that they would be a great anchor for the south end of the mall. Richard is a very astute guy. In about 60 seconds he saw the idea had a lot of merit,” he said.

“It will allow us to go after the higher end luxury shopper in a much more targeted way. I think we’ll be able to draw from perhaps customers and areas that in the past, we haven’t been,” said Sullivan.

Baker said proceeds of the deal will be used to reduce the HBC’s debt and invest in growth. He said no other real estate sales are being considered at this time although the company continues to look into the possibility of a real estate REIT.

The opportunity to buy a prime piece of downtown real estate doesn’t come around that often, said Ian MacCulloch, director of market intelligence, Canada, for Colliers.

“I think it’s a very good long-term asset for them,” he said of the purchase by Cadillac Fairview.

“This is a trophy property.”

Cadillac Fairview is the property management arm of the Ontario Teachers Pension Plan, with real estate holdings in several major cities.

The purchase points to the insatiable appetite that Canadian pension funds have for property, said John Crombie, national retail director for real estate services firm Cushman & Wakefield Inc.

He said the Eaton Centre was due for something big and exciting.

“To have the first Saks is a really coveted position. Now they are bookended by two large, successful and sought-after retail stores.”

Retail analyst Maureen Atkinson of J.C. Williams Group said the move solves the problem the Eaton Centre used to have of essentially being prevented from expanding in all directions by existing buildings.

Atkinson believes moving into Canada is a first step for Nordstrom and Sak’s and that both retailers are likely considering international expansion strategies.

She believes the Canadian marketplace can support more luxury retailers.

While HBC’s decision to open Saks on Queen St. instead of Bloor St. is a blow to Yorkville, both Atkinson and Crombie agree the area has no trouble attracting new retail tenants.

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